Saturday, August 30, 2008

Spot Life of Oct 08 CL (wk 1)

AP Satellite Photo of Gustav, 6:55 am EST, 8/30/08, at which time it was category 3, it has apparently just strengthened to category 4.

Well, the life of CL Oct 08 so far has been at the mercy, mostly, of Gustav. It appears to have trumped all other news. Or did it? Prices haven't moved that much since Gustav formed on Monday. And, outside of Gustav, most of the data shows larger and larger declines in demand, reductions in economic growth, increases in supply, increases in capacity, and reduction--Georgia notwithstanding--of political risk. So my guess is that going forward the price is going to fall. (Of course, predicting oil prices is a fools' game, were there ever one. So caveat emptor.)

Oil prices still don't appear to be following the Euro, but, if anything, the reverse.

CL Oct '08 spent the entire 7 days of trading covered in contango, and not just any contango, but the spot month was cheaper than every single forward contract all the way through December 2016! (You can see this via the graph below very clearly as the CL Oct '08 line is far below all the other contract price lines.) This is very very unusual--and I have no idea as to why. It may be that the market believes that in the distant future the situation is such as oil prices must go up ... I believe that at least part of this is due to political risk worries, but I would be hard pressed to say just why. In any case, there is now, hypothetically, good economic reasons for stocks to build, we will see when the EIA report comes out next Wednesday.

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